Employment derivatives: Difference between revisions

Though HR departments would [[Force-ranking|force-rank]] staff to a curve graded against an internal 5-point scoring metric employee “alpha” could still be mispriced especially over time, as a result of [[mediocrity drift]]. Barkley adjusted his model for mediocrity “smile” but the formal grade boundaries and other arbitrary “success criteria” of the HR model still led to arbitrage, especially with the rising popularity of “resource fluidity”. interdepartmental secondments were beset by diversity arbitrage and [[cheapest to deliver|cheapest-to-deliver]] scandals, especially over quarter end.

[[Reduction in force|reductions in force]] could be handled quantitatively by reference to the PIBOR forward curve rather than by business need or individual performance. This was not the last unintended consequence of the financialisation of the employment relationship.  

{{Drop|B|y this financial}} engineering Barkley had unwittingly created a tradable instrument out of an abstract benchmark. Due to their offsetting nature one could trade ERS directionally, on abstract [[π]] without having a job, or even wanting one. These “synthetic” instruments were valuable for sectors exposed to the vagaries of the labour market even where not directly engaged in it: recruitment consultants, employment lawyers, HR consultants — that kind of thing.  

{{Drop|B|anks even began}} selling employment derivatives directly to their employees, saving the bother of having to hedge themselves. There was an inherent conflict with these “self-referencing employment derivatives”: how could the very person ''presenting'' the risk to the organisation be the one to ''assume'' it?

So began the sad chronicle of employment rate swap mis-selling. When banks realised they could separate the employee’s wage, and pay that under a physical employment contract, then separately hedge out their [[π]] risk to that worker with a linked derivative. Before the emergence of ERS, the [[π]] risk was intrinsic to the employment contract and could not be abstracted and traded separately.  

The scandal blew up when it emerged HR departments were being incentivised to “pi-hack” their derivatives portfolios by arbitrarily placing employees on performance management, covertly arranging other firms to bid them away or just peremptorily laying them off, leaving redundant staff holding twenty-five year, deep [[out-of-the-money]] employment rate swaps but no actual job to hedge with it. Being the sort of people who would sling their redundancy payoffs into Dogecoin these people were doubly exposed should [[crypto]] go [[Seins en l’air|''titten hoch'']].

Though self-referencing employment derivatives are now prohibited in many jurisdictions, no-one was brought to book for  their poor selling practices. Nevertheless, interests in ERS hedging waned shortly afterward, as other incidents came to light. Some were faintly comical: during the [[COVID-19]] pandemic, a human resources trader at Wickliffe Hampton inadvertently opted for physical settlement by ticking the wrong box on a portfolio swap [[Confirmation - ISDA Provision|confirmation]] and had to deliver his entire HR department into an chain of patisseries that had just gone insolvent. At first, the team of thirty short-order cooks that arrived at Wickliffe Hampton’s London headquarters struggled to orient themselves, but before long morale improved markedly, and the morning teas were pronounced by all to be “excellent”.  

 

{{Sa}}